Keurig Green Mountain said Thursday it will hike the price of all its portion packs and bagged coffee products by nine per cent, effective this November.
According to Keurig, a huge jump in the price of coffee is behind the move. A severe drought in Brazil, which supplies 80 per cent of the world's coffee, has ravaged Arabica bean crops and pushed up the cost of coffee by 50 per cent.
"Many of our competitors already have implemented price increases in light of the reality of sustained input cost increases," said John Whoriskey, Keurig's president of U.S. sales and marketing. "After careful review, we determined that it is necessary for us to adopt a small price increase in light of these higher costs."
Keurig is late to pull the price lever. In June, J.M. Smucker raised the price of its Folgers and Dunkin' Donuts coffee brands by nine per cent. Days later, Starbucks gave the price of its cafe coffees a boost of one per cent.
But the convenience of the single-serve pods makes it far costlier than the bulk option. On Walmart's site, a 11-ounce tin of Folgers Classic Roast costs $5.97, while a 5-ounce pack of Folgers Classic Roast costs $11.47 — nearly double the price for less than half the coffee.
Prepare for more sticker shock
"The rallies that we've seen in the futures market in the last several months are finally starting to filter down to the retailers," said Jack Scoville, an analyst at Price Futures.
Both the Brazil drought, as well as a coffee rust fungus that plagued production throughout Central America in May, has lifted the benchmark contract to about $1.83 US per pound. That's a bit of a relief from April, when it nearly doubled within three months to a 26-month high above $2.
Scoville says it could reach as high as $2.50 within the next 12 months, forcing other brands in the industry to follow Keurig's lead.
"We’re trying to put a huge bull flag out right now," he said. "There’s a lot of talk that the Brazil crop won’t be any better next year than this year."